Archive for August, 2008
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Investors Pulling Out of Russia
Eddy Elfenbein, August 22nd, 2008 at 10:10 amIn January 1980, the gold market peaked just a few days after the Soviets invaded Afghanistan. Now it looks like the commodities market has again peaked with a Russian incursion, this time into Georgia. In the short-term, it was a strategic victory for Putin, but the long-term might not be so kind. The BBC reports that investors are pulling out of Russia.
Russia has seen foreign reserves decline, a sign that the market is more nervous about investing in the region since the recent conflict in Georgia.
Central Bank figures show reserves were sharply down in the week ending 15 August, marking a fall of $16.4bn (£8.8bn) from $597.5bn a week earlier.
Tensions with the west have also been strained by Russia’s objection to the US placing a missile defence in Poland. Georgia has urged the west to invest in the region as it seeks to rebuild.
According to the Financial Times, the latest drop in capital reserves is the largest “since comparable figures began” in 1998, though similar funds were taken out during the currency crisis. -
Quote of the Day
Eddy Elfenbein, August 22nd, 2008 at 9:48 am“You always find out who’s been swimming naked when the tide goes out. We found out that Wall Street has been kind of a nudist beach,” said Buffett, who was called the world’s richest person by Forbes magazine.
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Random Observation
Eddy Elfenbein, August 19th, 2008 at 1:04 pmIs it me or is everyday either a good day for commodities and commodity stocks and a rotten day for financials and value stocks, or an awful day for commodities and commodity stocks and a good day for financials and value stocks?
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Flashback from 1998: NYT: Commodities’ Price Slide Victimizes Economies of Several Nations
Eddy Elfenbein, August 19th, 2008 at 11:39 amOn December 10, 1998, the price for oil reached a low of $10.72 a barrel. That was the lowest price since 1986, and it turns out, it was the beginning of a huge turnaround for the price of crude.
So the low prices were good news, right? Well, not exactly. The New York Times was able to find the downside: Market Place; Commodities’ Price Slide Victimizes Economies of Several Nations:
Victimizes?What worries analysts now is that the recent decline is a signal that prices will not turn around soon.
Matthew J. Sagers, the director of the energy service of Planecon, a consulting group specializing in the former Soviet Union and Eastern Europe, said the consensus on oil prices ”is that we are going to be here for several years.”
Mr. Brainard and other analysts argue that an extended period of lost economic growth and lower governmental revenues stemming from the drop in commodity prices will raise the pressure on many already troubled governments and economies. That could intensify investor concern and weaken currencies. To defend those currencies, central banks would have to raise their interest rates — which would mean even slower growth.
The impact on Russia, for example, has been stark. The country’s $87 billion in 1997 exports included $21.9 billion in oil, $16.4 billion in gas and $14 billion in metals — about 60 percent of the total.
But the prices of every one of these commodities have fallen sharply and are still declining. The price of platinum, for which Russia is the second major supplier, has dropped almost 12 percent just since July. The price of oil plunged 36 percent — from around $22 a barrel in October 1997 to around $14 in August — and has fallen another 23 percent, to $10.72, since November.At the time, Kofi Annan approved oil sales to Iraq for “humanitarian goods,” which apparently including several palaces for Saddam. According to a CNN article from 1998:
But Benon Sevan, executive director of the program, turned down Iraq’s request to improve its telecommunications system, saying Baghdad had not answered an October 30 letter requesting information on the subject.
Annan’s endorsement also excluded $20 million to upgrade Iraq’s banking system, a new item Baghdad had not previously discussed with the United Nations, according to a letter Sevan sent to Iraq’s outgoing U.N. ambassador Nizar Hamdoon.Mr. Sevan unfortunately couldn’t be with us today. It turns out that according to the Volcker Report, he was taking cash bribes from Saddam.
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Medtronic Earns 72 Cents a Share
Eddy Elfenbein, August 19th, 2008 at 9:54 amThis morning, Medtronic (MDT) posted adjusted fiscal first-quarter earnings of 72 cents a share which topped Wall Street’s forecast of 69 cents a share. For last year’s Q1, the company earned an adjusted 62 cents a share, so that’s an impressive increase. Revenues rose 18.5% to $3.71 billion. Sales for its spinal biz rose 33%. Revenue outside the U.S. grew by 24% and accounted for nearly 40% of all revenue.
This is the latest is a string of good news for the company. A few weeks ago, the board increased the quarterly dividend by 50%. In May, the company said it expects earnings-per-share for 2009 to range between $2.94 and $3.02. After today’s report I wouldn’t be surprised to see that range revised higher. If Q2 earnings come in at 70 cents a share or better, than I think MDT should easily earn $3 this fiscal year.
Here’s a look at MDT’s sales and earnings for the past several quarters:
Quarter………..EPS………….Sales
Jul-01…………$0.28………..$1,455.70
Oct-01………..$0.29………..$1,571.00
Jan-02………..$0.30………..$1,592.00
Apr-02………..$0.34………..$1,792.00
Jul-02…………$0.32………..$1,713.90
Oct-02………..$0.34………..$1,891.00
Jan-03………..$0.35………..$1,912.50
Apr-03………..$0.40………..$2,148.00
Jul-03…………$0.37………..$2,064.20
Oct-03………..$0.39………..$2,163.80
Jan-04………..$0.40………..$2,193.80
Apr-04………..$0.48………..$2,665.40
Jul-04…………$0.43………..$2,346.10
Oct-04………..$0.44………..$2,399.80
Jan-05………..$0.46………..$2,530.70
Apr-05………..$0.53………..$2,778.00
Jul-05…………$0.50………..$2,690.40
Oct-05………..$0.54………..$2,765.40
Jan-06………..$0.55………..$2,769.50
Apr-06………..$0.62………..$3,066.70
Jul-06…………$0.55………..$2,897.00
Oct-06………..$0.59………..$3,075.00
Jan-07………..$0.61………..$3,048.00
Apr-07………..$0.66………..$3,280.00
Jul-07…………$0.62………..$3.127.00
Oct-07………..$0.58………..$3,124.00
Jan-08………..$0.63………..$3,405.00
Apr-08………..$0.78………..$3,860.00
Jul-08…………$0.72………..$3.706.00 -
PPI Rises at Fastest Rate Since 1981
Eddy Elfenbein, August 19th, 2008 at 9:29 amAh, it seems like old times. Not only is the Cold War coming back, but today’s report on producer prices indicates that wholesale inflation is at its highest level in 27 years.
The PPI jumped 1.2% last month which is more than double what economists were expecting. Even if you strip out food and energy and just look at the “core rate” wholesale inflation still rose by 0.7% or more than three times the 0.2% expected by economists.For July, wholesale energy prices jumped by 3.1 percent following a 6 percent gain in June. That increase reflected big jumps in the price of natural gas, home heating oil and liquefied petroleum gas, which offset a 0.2 percent dip in gasoline costs.
Food prices rose by 0.3 percent in July after a 1.5 percent surge in June. Beef prices jumped by 7.4 percent, the biggest increase in nearly four years. Milk prices shot up by 5 percent, the biggest gain in a year, while soft drink prices rose by 2.4 percent, the largest increase in four years.
Excluding energy and food, the 0.7 percent rise in core inflation reflected big gains in the prices of passenger cars and light trucks, pharmaceutical preparations and plastic products.Naturally there’s a bit of a lag to these numbers and the dramatic sell-off in oil prices will most likely be seen in next month’s report.
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More Troubles on Wall Street
Eddy Elfenbein, August 18th, 2008 at 2:07 pmPart 1:
Part 2:
Part 3:
From Equity Private. -
From the Halls of Academia
Eddy Elfenbein, August 18th, 2008 at 1:50 pmFinally!
A New Value-Weighted Total Return Index for the Finnish Stock Market 1912-1969 -
JNJ Hits New High
Eddy Elfenbein, August 18th, 2008 at 1:11 pmI really like the stock of Johnson & Johnson (JNJ). Few companies have been as stable long-term winners as JNJ. A few months ago, I said it was a good buy, especially under $60. Just recently, the shares finally took out their 2005 high. The company reported good earnings again last month. JNJ now sees 2008 EPS coming in at $4.45 to $4.50 which is almost certainly too low.
Here’s a look at JNJ’s stock (blue line, left scale) and earnings (gold line, right scale with EPS projection in red). The two lines are scaled at 16-to-1.
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The Nasdaq Lauches for New Indexes
Eddy Elfenbein, August 18th, 2008 at 11:42 amThe Nasdaq has announced that it’s launching four new indexes; biotech, coal, steel and precious metals.
If anyone needs me, I’ll be shorting biotech, coal, steel and precious metals.
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